Logistics Solutions provides order fulfillment services for dot.com merchants. T
ID: 2577427 • Letter: L
Question
Logistics Solutions provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. When a client receives an order from a customer, the order is forwarded to Logistics Solutions, which pulls the item from storage, packs it, and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor-hours.
In the most recent month, 155,000 items were shipped to customers using 6,000 direct labor-hours. The company incurred a total of $17,400 in variable overhead costs.
According to the company’s standards, 0.04 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is $3.00 per direct labor-hour.
According to the standards, what variable overhead cost should have been incurred to fill the orders for the 155,000 items? How much does this differ from the actual variable overhead cost? (Round labor-hours per item and overhead cost per hour to 2 decimal places.)
Break down the difference computed in (1) above into a variable overhead rate variance and a variable overhead efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Logistics Solutions provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. When a client receives an order from a customer, the order is forwarded to Logistics Solutions, which pulls the item from storage, packs it, and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor-hours.
Explanation / Answer
1. calculation of standard variable overhead cost
standard labour hrs required for 155000 items = 155000 * 0.04 hrs
= 6200 hrs
variable overhead cost = standard direct labour hrs required * standard variable OH rate
= 6200 hrs * $3
= $ 18600
difference between actual and standard variable oveerhead cost = standard variable OH cost - actual variable OH cost
= 18600 - 17400
= $ 1200
2. total variable overhead cost variance = 1200 favouable
variable overhead rate variance = (standard rate - actual rate# ) * actual hrs
= ( 3 - 2.9) *6000
= 600 fav.
# actual rate = actual variable overhead cost / actual hrs
= 17400 / 6000 = 2.9
variable overhead efficiency variance = (standard hrs - actual hrs ) * standard rate
= ( 6200 - 6000) * 3
= 600 fav.
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